WSJ: Investors Bypass Eurozone for Central and Eastern Europe

Thursday, 30 Aug 2012 12:30 PM

By Dan Weil

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In the old days, investors viewed the financial markets of Central and Eastern Europe as fraught with unacceptable risks.

But now they are flocking to these markets, avoiding the beleaguered eurozone, The Wall Street Journal reports.

Market results validate the strategy. In Poland, Hungary and Turkey, for example, both the stock and bond markets have outperformed those of the eurozone so far this year.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

And the currencies of all three countries have appreciated against the euro – by a larger amount than the dollar has.

Stock markets in the three nations stand as the best performers among emerging markets over the last three months.

"These assets look cheap compared to other emerging markets," Bryan Carter, portfolio manager at Acadian Asset Management, tells The Journal. His firm began purchasing local-currency Hungarian government bonds in May.

The countries in Central and Eastern Europe are enjoying buoyant economic growth. And their bond offer juicy yields. In Turkey 10-year government notes yield close to 8 percent, compared with 1.4 percent in Germany.

"The yield's definitely a draw," Lauren van Biljon, emerging-markets economist for Wells Fargo Advantage Funds, tells The Journal.

While there is the possibility that the eurozone debt problems could severely impact Central and Eastern European economies, the potential returns outweigh the risks for now, according to The Journal.

High yields also are drawing investors to Latin American bonds.

For example, “Brazilians have a culture in which they’re used to paying high interest rates — it’s in their blood,” Heiner Skaliks, manager of the Strategic Latin American Fund, tells MarketWatch. “That makes it an attractive country for bonds.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2014 Moneynews. All rights reserved.

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